Missouri Republicans want income tax cuts. But services could be taxed instead under plan
Missouri residents may soon pay a flat 4% state income tax, under a plan advanced by Republican lawmakers who want to eventually eliminate the tax.
At the same time, the GOP proposal would give the General Assembly the power to impose sales taxes on an array of previously untaxed services – everything from massages to furnace maintenance.
Numerous Republicans are prioritizing taxes as the GOP-controlled Missouri legislature’s annual session begins Wednesday. Gov.-elect Mike Kehoe, who takes office next week, promised in his campaign to pursue elimination of the state income tax and some legislators are moving swiftly to hold him to it.
A group of Republican lawmakers last month filed a series of identical measures setting the stage for a sweeping tax debate. Their legislation would collapse the state’s 10 personal income tax brackets into a single 4% bracket.
An accompanying state constitutional amendment would set spending growth limits on the General Assembly and direct future revenue growth toward eliminating the personal income tax and corporate income tax. The proposal, which would need voter approval, would also give lawmakers the power to charge sales tax on services.
The twin measures come as Kehoe and other officials predict tighter budgets are looming, as Missouri finishes spending the massive amount of federal pandemic aid that flowed into the state.
The state received more than $14 billion in total in federal aid, helping drive a series of large capital projects, including a statewide expansion of Interstate 70. The state income tax represents a major source of revenue for Missouri, generating more than $8 billion a year to help pay for a state budget that soared past $50 billion in total spending in recent years.
Budget experts and Democrats say ending the state income tax would inflict financial damage, especially given the more challenging budget era. But Republican supporters of tax cuts insist eliminating the income tax will attract people to the state and drive economic growth.
“Like many Missourians, we are excited by Governor-Elect Kehoe’s vision to eliminate Missouri income taxes,” six GOP lawmakers said in a joint statement when they introduced the measures. “Inspired by his leadership and fortified by his historic victory in November, we feel we have a mandate from Missouri to enact this important legislation.”
Supporters of the tax legislation say the proposals are designed to prevent a fiscal calamity, a claim met with skepticism by opponents.
The constitutional amendment limits annual increases in spending based on state population growth, with the General Assembly allowed to raise spending by a percentage equal to the population growth of the previous year. Missouri’s population typically grows at less than 1% a year, which under the amendment would round up to a 1% annual increase in spending.
The amendment creates a “Tax Reform Fund” that would receive any revenue above anticipated spending in excess of $1 million. Once the fund reaches $120 million, lawmakers would be required to cut the top income tax rate by at least 0.1% – and an additional 0.05% for every $60 million above the $120 million minimum balance.
Once the personal income tax is eliminated, the excess revenue would be redirected toward ending the corporate income tax.
The amendment would pave the way for de facto budget cuts, given that even in periods of low inflation, consumer prices typically rise 2-3% a year. During periods of high inflation, the purchasing power of Missouri tax dollars would rapidly shrink but lawmakers would be prohibited from increasing spending to effectively compensate.
“Frankly, our wages don’t go up at the rate of population growth, the price of food doesn’t go up at the rate of population growth and I am concerned that will cause problems where we will be underfunding and defunding our schools, underfunding and defunding our public safety in the state,” said Rep. Kemp Strickler, a Lee’s Summit Democrat who has sat on tax reform committees.
Missouri has among the lowest-paid state employees in the nation, Strickler said, saying the amendment would “just add to that problem.”
Income tax already cut
Missouri has already cut the state income tax multiple times over the past decade. In 2022 the General Assembly passed a bill that lowered the top state income tax rate from 5.3% to 4.95% in 2023. The bill, signed by outgoing Gov. Mike Parson, also mandated that if Missouri experiences revenue growth, the rate would drop to 4.5% when the plan is fully implemented in five years.
Traci Gleason, a spokeswoman for the Missouri Budget Project, which conducts financial research and analysis, said in a November interview that COVID-era federal funding helped gloss over the effects of previously approved tax cuts. The federal funds gave the impressions that “we were more flush than we were,” she said.
In an email on Tuesday, Gleason emphasized that the flat tax proposal is intended as a stepping stone to eliminating the income tax altogether, a move she said would wreak havoc on state services. State income tax provides more than 60% of the state general revenue used to support local schools, health care, mental health and other services, she wrote.
A leading proponent of the tax proposals, Republican Sen. Curtis Trent of Battlefield, said fully eliminating the income tax could take upwards of 10 to 20 years under the amendment. The measure is designed to prevent a budget crisis, he contends.
“The goal is to not have any cuts or any tax increases – you’re trying to adjust over a long period of time so that people’s expectations and everything can adjust along with it,” Trent said.
Still, the amendment would open the door to lawmakers imposing sales tax on previously untaxed services. Missouri currently assesses sales tax on goods, with only a limited number of services, such as concert tickets and hotel rooms, subject to tax.
Trent emphasized that the amendment doesn’t require taxes on services, but gives the General Assembly the option.
“If you wanted to go faster, that’s one of the things you could do,” Trent said. “This doesn’t require that outcome.”
Kehoe’s support key
Whether Kehoe – and other top Republicans – support the proposals offered by Trent and others remains an open question.
Fights over tax cuts hung over the Republican contest for governor last year, with the major candidates all pledging in some form to pursue the elimination of the state income tax. Kehoe’s campaign previously said it was working with the conservative economist Art Laffer, who advised former Kansas Gov. Sam Brownback as he championed income tax cuts that spurred a budget crisis in that state.
While Kehoe embraced the overall goal of ending the tax, he also called for a measured approach.
“You have to get it to a point where you’re not affecting essential services and education,” Kehoe said during a September debate.
Additionally, the incoming governor warned of difficult decisions ahead. In the fall, he predicted “some tougher times on the horizon” for the budget.
A Kehoe spokeswoman didn’t respond to a request for comment for this story.
New Senate President Pro Tem Cindy O’Laughlin, a Shelbina Republican, said her fellow Senate Republicans were committed to “letting Missourians keep more of their hard-earned money.” She said as legislation is reviewed, GOP senators will focus on reducing the tax burden and simplifying the tax code.
Any changes must “strike the right balance” between relief and maintaining the resources necessary to fund essential services, she said.
Rep. Jonathan Patterson, a Lee’s Summit Republican who is expected to be elected House speaker when the chamber convenes on Wednesday, said he generally favors cutting taxes.
He cautioned that lawmakers must remain mindful of budget constraints, especially the Missouri Constitution’s Hancock Amendment, which makes raising taxes extremely difficult for lawmakers after they lower them.
“But if there is an opportunity to cut income taxes for Missourians, I will definitely take a look at that,” Patterson said. “And the House Republicans are enthusiastic about that as well.”
But Democrats fear rushing to cut or end the income tax will threaten the state’s financial stability.
“I hear a lot of talk – it’s really popular campaign rhetoric that we’re going to cut taxes – but how do we actually implement that is a very different story,” Sen. Maggie Nurrenbern, a Kansas City Democrat, said.
This story was originally published January 8, 2025 at 5:30 AM.
